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Terms call for Denver-based Westport's stockholders to receive 0.71 share of Kerr-McGee common stock for each of their shares. In all, Kerr-McGee
KMG
will issue 49.4 million new shares to Westport's stockholders.

After the announcement, Standard & Poor's said it would review Kerr-McGee's "BBB" corporate credit rating and cut the company's short-term debt rating to "A-3" from "A-2." The rating agency said Westport's "BB" credit rating could be upgraded.

"Specifically, we are concerned about Kerr McGee's very high finding and development costs -- a problem shared by Westport, the still high component of undeveloped reserves, the large amount of future spending associated with developing these reserves, the company's significant debt leverage, and whether it will be able to achieve debt reduction from internally generated cash -- something it has not demonstrated on a consistent basis," said S&P credit analyst John Thieroff in the report.

Westport's shares were up $1.15 cents, or 3.5 percent, to close at $34.20, while Kerr-McGee slumped $2.10, or 4.1 percent, to close at $49.41.

S&P said it expects to complete the review soon after meeting with Kerr-McGee management. If a downgrade ensues, the rating would more than likely be cut by only one notch.

The companies expect to complete the deal in the third quarter.

Westport
WRC, -30.29%
has extensive holdings in the Rocky Mountains. At the end of 2003, the company's proved reserves totaled 1.8 trillion cubic feet of natural gas equivalent.

Oklahoma City-based Kerr-McGee said the acquisition would add to earnings and cash flow beginning in 2005. The company envisions cost savings topping $40 million a year, before taxes.

"When combined with our existing U.S. onshore property position, these properties will provide a stable foundation of high-margin production and low-risk growth opportunities," said Luke Corbett, Kerr-McGee's chairman and chief executive, in a press release.

Kevin Kerr, editor of the investment newsletter Kwest Market Edge, called the merger a huge event for Kerr-McGee.

It "makes Kerr-McGee a serious household name for traders now," he said. "As a rule I do not trade Kerr-McGee ...they have never been a very forward thinking group. Now all that may have changed. Stay tuned."

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